HSBC share price: bank may need up to £67 billion capital injection, analysts claim

on Jan 17, 2014
Updated: Oct 21, 2019
Listen, Friday, January 17: Europe’s biggest bank (LON:HSBA) is likely to need a capital injection of between $58.3 billion and $110.6 billion (£35.5-£67.3 billion) to meet the 2019 Basel III requirements and repair “overstated assets at the major subsidiary level”, according to corporate research firm Forensic Asia. The identified capital hole accounts for between 32 percent and 61 percent of current stated equity.

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In an extensive company report, Forensic senior analysts Thomas J. Monaco and Andrew Haskins claim that HSBC has overstated earnings, assets and capital ratios. According to their calculations, the level of “questionable assets” on the banking group’s balance sheet amounts to between $63.6 billion and $92.3 billion (£38.7-£56.1 billion), and represents between 34.7 percent and 50.4 percent of its stated equity as of end-June 2013 and between 4.7 and 6.8 years of results. The analysts reckon that the major part of the required capital injection would come from “dilutive equity issuances and the possible liquidation of its core franchises”, which would have a negative effect on the bank’s earnings and return on equity (ROE).

This could result in a dividend cut or even a temporary suspension of returns of cash to shareholders.
Forensic also believes that HSBC will face up to $10 billion of additional legal and regulatory penalties. It recommends investors to sell the lender’s shares, setting a price target of HK$63 per share, 27 percent below the stock’s latest closing price.

Thomas Monaco is a former senior bank examiner at the Federal Reserve Bank of New York and has worked for about a decade as a banks analyst at various leading investment banks, while Andrew Haskins has worked at HSBC for 15 years, mainly as a telecoms analyst, and also co-ran Japanese bank Mitsubishi UFJ’s Hong Kong-based research team.

In London trading, HSBC’s share price fell 0.8 percent to close at 673.9p yesterday when the news hit the market. It has regained ground today, rising 0.9 percent to 680.1p as at 11:28 UTC, compared to a 0.2 percent rise in the blue chip FTSE 100 index.
According to a survey of analysts published by Analyst Ratings Network, HSBC has a consensus rating of ‘hold’ and an average target price of 768.5p. Eighteen research analysts have a ‘hold’ rating on the stock, 17 have it as a ‘buy’, one has it as a ‘strong buy’ and four call it a ‘sell’.

**As of 11:14 UTC buy HSBC shares at 679.70p.**
**As of 11:14 UTC sell HSBC shares at 679.50p.**
Trade stocks with Hargreaves Lansdown from £5.95 per deal.
Prices can go up and down meaning you can get back less than you invest. This is not advice. Dealing services provided by Hargreaves Lansdown.


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